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The (ex) banker’s perspective: How do you make a cashless society all-inclusive?

category:
Trends

sectors:
Technology

Maysam Rizvi has spent 15 years in banking. Working in senior roles across sectors such as risk, corporate finance and investment banking, Maysam is now CEO of his own financial startup,Elifinty.

After being sent to Iceland to recover money for failed financial institutions during the financial crisis, Maysam had a wake-up call. He saw the impact of banking on ordinary people who lost their businesses and houses through no fault of their own. “Banks can’t help people because of how they are fundamentally set up.” So Maysam started Elifinty to help normal people through money crises.

“There is a push from the government to go cashless,” Maysam explains. For banks, it’s all about building on profit. Consumer banks are working towards becoming cashless, because for them, managing cash is an overhead cost.

Not everyone is in a position where cashless suits and many are financially vulnerable. Around three per cent of the UK population are unbanked (approximately one million people) – If society goes cashless, these people have no method of paying. It’s important to consider poverty premium, Maysam reminds us.

“Poverty premium is the premium that a poor person pays for goods and services that everyone else enjoys.” Overdraft services are great for some but highlight the issue of poverty premium. For people who are financially vulnerable and don’t have an overdraft, they will be charged penalty rates by banks, for spending more than they have. Essentially, they are being charged extra for being poor. Banks earn around 1.5 billion a year from these charges.

50% of the UK is financially vulnerable according to Maysam. “We are at the worst state in history from a financially vulnerable, poverty premium point of view.” He goes on to explain that people need to be better educated on finance, “One of the most googled terms in the UK is ‘What is APR’?”

According to Maysam, the pull for cashless payments has come from consumers. Once they saw the benefits of using Apple Pay, banks and businesses were happy to move to cashless. “Fundamentally, a cashless society is a society of data. You are exchanging value as data. A company that can manage data really well, will do really well in this economy.” Maysam moves on to discuss Facebook acquiring a banking license. Since filming the podcast Facebook has moved forward in the banking world. Today, they launched their own cryptocurrency, meaning Facebook is now a big threat for banks in this space. The Verge explains that for most processes currently “You need a credit card or a bank account, a financial tool not accessible to roughly 1.7 billion people. Weil says Calibra will be available to anyone with a cheap Android smartphone.” Is this step Facebooks way of making cashless all-inclusive?

Different countries move at different paces. How would we manage with the clash of cashless / cash economies? Credit cards are essentially cashless. Currently, as a UK citizen, you could go to the US and pay with your UK card even though it’s your credit on the underlying GBP currency because there is infrastructure in place that make this possible. The trouble is, going to countries where this infrastructure don’t exist. When you go to these countries you convert your cashless card to physical currency at the airport. It’s still possible to have an entirely cashless economy working with an entirely cash economy, there are just certain processes you have to follow. As Maysam points-out:

“If the push is right maybe we can see cashless as soon as 2025. The only thing that’s stopping it is how do you make it all inclusive for society? That’s the biggest challenge.”